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Norway postponed a final decision on whether to go ahead with a project to develop Europe's first industrial carbon capture and offshore storage (CCS) project, after dropping one of its participants, Yara International.

The government said on Tuesday that fertilizer maker Yara's site, one of three industrial facilities identified for the project, was not suitable and the project as a whole needed to be more cost effective.

Governments and businesses seeking to cut carbon emissions have long cherished the idea of storing CO2 in the ground rather than emitting it.

The Norwegian government, which has estimated its project will cost up to 12.6 billion Norwegian crowns ($1.6 billion), had planned to decide in 2019 on whether to invest some of the money for the project, but on Tuesday put that decision off until some time during 2020 or 2021.

The other two industrial sites identified for the project are Oslo's Klemetsrud waste-to-energy plant owned by Finland's Fortum, and a site owned by Norcem, a subsidiary of HeidelbergCement.

The government also said on Tuesday that it needed more time to decide whether to grant support to Fortum's project. However, it gave Norcem's site the green light, saying it would grant 80 million crowns ($10 million) for Norcem's project to capture about 400,000 tonnes of CO2 emissions per year.

The government said Yara's facility was unsuitable due to uncertainty about the plant's future emissions as it planned to replace liquefied petroleum gas (LPG) with less-emitting liquefied natural gas (LNG) as its raw material.

"We agree with the government's conclusion and will discontinue the project," a spokeswoman for Yara said.

The International Energy Agency (IEA) considers CCS technology to be essential to limit CO2 emissions as part of an international agreement to curb global warming reached in Paris in 2015.

Investments in the project at Norcem's cement plant were estimated at 3.1 billion crowns, and at Fortum's plant at 4.5 billion crowns, the government said in its revised 2018 fiscal budget plan on Tuesday.

It said that while estimates by external consultants Atkins and Oslo Economics showed the overall project costs to be too high to make it profitable for society, the government would continue looking for a cost-effective solution.

"After the concept studies, the timeline for the project suggests that a potential investment decision may be taken in 2020/2021," the government said.

Norway's oil and gas industry lobby welcomed the decision to grant support to Norcem, but said more capture sites were needed to make the project viable. Both the lobby group and a top trade union said they were concerned by the delay in the government's decision.

Norway aims to take a lead in developing CCS technology. As well as the government-backed project, oil and gas firms Statoil, Total and Shell are separately studying the possibility of storing captured CO2 under the seabed on the Norwegian continental shelf.